Q2 2023 Fresh Del Monte Produce Inc Earnings Call
Okay.
Good day, everyone and welcome to fresh del Monte produces second quarter 2023 earnings Conference call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star one for opening remarks, and introductions I would like to turn today's call over to Vice President Corporate Communications.
With fresh del Monte produce Claudia Paul. Please go ahead Mr. Paul.
Thank you Rob good morning, everyone and thank you for joining our second quarter 2023 conference calls as Rob mentioned I'm, Claudia Poe, Vice President corporate communications with fresh del Monte produce.
Joining me in today's discussion are Mohammad Abu <unk>, Chairman, and Chief Executive Officer, and Monica, <unk>, Senior Vice President and Chief Financial Officer.
I hope that you've had a chance to review the press release that was issued earlier. This morning via business wire. You May also visit the company's IR website at Investor Relations, Dr. Fresh del Monte Dot Com to access today's earnings materials.
And to register for future distributions.
This conference call is being webcast live on our website and will be available for replay after this call.
Please note that our press release and our call today includes non-GAAP measures reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website I.
I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions may include forward looking statements within the provisions of the federal Securities laws Safe Harbor.
In today's press release and in our SEC filings, we detail material risks that may cause future results to differ from these forward looking statements are statements are as of today August 2nd and we make we have no obligation to update any forward looking statements we may make.
During the call we will provide a business update along with an overview of our second quarter 2023 financial results followed by question and answer session with that I'm pleased to turn today's call over to Mr. <unk>.
Thank you Claudia and good morning, everyone.
We are truly pleased with our performance for the second quarter of 'twenty three.
Net income more than doubled compared with the payer.
Period.
Gross profit and gross margin increased substantially when compared with the same period last year.
And we've had to reduce our debt.
In the second quarter, we sold our plastic business in Chile, as well as other lends itself et cetera America as part of our commitment to optimize our asset base.
We are continuously looking for areas of opportunity within our portfolio.
<unk> our return on investment.
Our core products banana.
Performed very well in the second quarter, and we continue to see strong demand for our <unk> and big drill by hepatitis.
Which contributed to the margin improvement in the fresh and value added.
Product segment.
Our capital program is also growing we have expanded our customer base and increased sales volume and we are also diversifying our sourcing operations due to Colombia, Dominican Republic appeal.
We continue to refine our pricing and sourcing technology for avocados.
We believe this technology is the missing link that will further elevate our avocado business as you know avocado pricing has been historically hard to predict because of the ever changing markets and weather conditions and mix.
Okay.
In recent months, we have all witnessed record heat and changing weather patterns.
These climate issues.
And we are seeing these.
At the farm level.
We have embarked on an all out effort to find solutions for some of these challenges as part of our continuous focus on our day won't get perhaps commitment of quality freshness and reliability.
We have 700 climate related projects in the works that get to the root of these new challenges.
Our scientists.
Chips are working diligently to improve.
Farming methods to help optimize our years, while preserving and protecting our growing glass.
We are focused on ways in which we can leverage technology like drones and smart farming.
To move towards et cetera economy on our farms.
As a global Agriculture company, we understand the importance of focusing on the basics water.
Trees and solid.
And protecting the environment whenever we can.
It is essential for human survival it is essential to our survival.
Industry leader, we believe it is our duty to set an example.
We believe we are making progress for our.
Vision for Brian first of all what tomorrow.
Recently fresh del Monte was recognized for its what sustainability by two different leading sustainability organizations.
We were awarded.
2023, CA business Sustainability award for our reduction of greenhouse gas emissions across the agricultural value chain.
And we have been Shortlisted for Honeywell sustainability.
And the new launch category fund the del Monte deal.
Bye.
Our certified carbon neutral biomass.
Offset emissions from farm to market.
The amount of zero.
One of several examples of how innovation within our <unk> segment is creating value for our consumers and.
Our business, while operating sustainably.
Demand for our Teng propane up it has been outpacing supply with sales more than doubling versus the same period last year.
After years of research and development, we were able to create a big pie that's already weak Apple juice.
Yes.
Similarly, the Hunter you will find out that our premium product that has a unique global color at express weekdays.
Continues to increase and demand sales in North America alone sales were up more than 50% <unk>.
Quarter.
Both being blow on nonaccrual at fresh del Monte is innovation and their market acceptance.
This show how crucial innovation.
By category.
As everybody knows we are leaders in this space and our successful innovation update.
Sustainability and innovation go hand in hand, with our clearly defined five year roadmap.
Our vision is to become a technology driven.
The company by leveraging our strength in agriculture and supply chain.
We plan on doing that through innovation and exceptional customer service.
Asset optimization strategic partnerships and research and development.
Scott.
Our extensive industry knowledge and deep data library.
We understand that achieving this transformational vision will take that.
All companies do very well.
Glad to see it is not the day this route.
We are laying the groundwork for our transformational vision as we speak.
Lastly, before I pass the call over to Monica.
This week, we announced a new partnership with lunch at Kraft Heinz.
Launching lunchables with fresh fruit.
Which will feature multiple prominently in select luxury vehicles.
We are currently in the early testing stages of Lunchables with fresh fruit selling to retailers in the south central region of the U S with.
With the goal of <unk>.
Expansion into the U S market.
We believe that is a significant potential and partnering with our brands like Kraft Heinz with more than 30 years and the market Kraft Heinz is I need that indicates may comverse category.
Yeah.
On the consumer front, we see this as a great opportunity to change Childress press.
<unk> around fruits and vegetables.
Ideally, helping to make fruit and vegetable consumption second nature to younger generations by showing up front and center and a product they already know and enjoy it.
This partnership aligns closely with our mission to inspire healthy lifestyle.
Ill provide wholesale and convenient products to everyone.
At this point I would say the quarter Monica talked about the second quarter financial results Monica. Thank you Mohammed and thank you for joining us on today's call.
Let's turn to our second quarter of 2023 financial results.
Net sales for the second quarter of 2023 were $1, one 8 billion compared with $1 two 1 billion in the prior year.
The net sales variance was primarily driven by the fresh and value added product segment.
Specifically lower per unit pricing of avocados to due to market conditions as Mohammad mentioned and lower sales volume of non tropical fruit there.
This was partially offset by increased net sales of banana driven by higher pricing and volume.
Gross profit for the second quarter of 2023 was higher by $36 million, an increase of 45% compared with the prior year period.
Gross profit benefited from lower product and distribution costs in the fresh and value added product segment combined with higher banana profitability.
Operating income was $72 million compared with $34 million in the prior year.
And adjusted operating income was $68 million compared with 33 million.
The increase in adjusted operating income was primarily due to the higher gross profit.
<unk> net income for the second quarter of 2023 was $48 million compared with 21 million in the prior year.
And adjusted FTP, net income was $46 million compared with $21 million.
Our diluted earnings per share was <unk> 99.
Compared with 44 cents in the prior year.
Adjusted diluted earnings per share was <unk> 96, compared with 43.
The difference of <unk> <unk> per share between GAAP and adjusted diluted EPS. During the second quarter of 2023 was related to the gain on sale of underutilized assets.
Adjusted EBITDA for the second quarter of 2023 was $85 million compared with $56 million in the prior year and a corresponding adjusted EBITDA margin was seven 2% compared with four 6% in the prior year.
Let's now turn to the segment results beginning with our fresh and value added products segment.
As we said net sales for the second quarter were $678 million compared with $732 million in the prior year.
Primarily a result of a lower per unit prices of avocados due to market conditions combined with lower volumes of non tropical fruit.
Partially offsetting the decrease were higher net sales of pineapple fresh cut fruit vegetables, and melons due to higher per unit selling prices.
As well as higher avocado sales volume.
Gross profit for the second quarter of 2023, with 62 million compared with $49 million in the prior year, an increase of 26%.
The increase in gross profit was positively impacted by higher per unit selling prices for most products in this segment and lower distribution and ocean freight costs.
We also saw higher gross profit of avocados due to lower per unit product costs and higher volume.
As Mohammad mentioned strong demand for <unk> and peak load pineapple varieties also contributed to the higher gross profit.
Partially offsetting these cost reductions were higher production and procurement cost of most products, which continued to be impacted by lingering inflationary pressures as well as the impact of a stronger Costa Rica colon.
As a result of these factors gross margin increased to nine 2% compared with six 7% in the prior year.
Moving to our banana segment net sales for the second quarter of 2023 increased by 27 million or 6% compared with our prior year, primarily as a result of higher per unit selling prices in Europe , and North America and higher sales volume in Asia.
Europe and North America.
Banana gross profit in the second quarter of 2023 with $51 million compared with $22 million in the prior year, an increase of 120%.
The increase in gross profit was driven by higher net sales and lower distribution and ocean freight costs, partially offset by higher production and procurement costs due to the continuing impact of the inflation combined with the impact of a stronger Costa Rica colon.
As a result of these factors gross margin increased to 11, 3% compared with five 3% in the prior year.
Lastly, net sales of our other products and services segment for the second quarter were $54 million compared with $58 million in the prior year.
As a result of lower net sales of third party freight services due to softening global demand.
Gross profit for this segment was $4 million compared with $9 million in the prior year as a result of the lower net sales.
Gross margin was seven 8% compared with 15, 6% in the prior year.
Now moving to selected financial data.
Selling general and administrative expenses for the second quarter of 2023 remained relatively in line at $47 million compared with the prior year.
Net interest expense slightly increased compared to the prior year driven by higher interest rates, partially offset by lower debt balance.
Other expense net for the second quarter of 2023 was $6 million compared with $3 million in the prior year.
The increase relates to higher foreign currency related losses, primarily due to unrealized losses on balance sheet re measurement.
Income tax provision was $11 million compared with $5 million in the prior year. The increase in the income tax provision was due to increased earnings in certain higher tax jurisdictions.
Bind with the tax effect related to the sale of our plastic business subsidiary.
Now moving to our cash flows.
Net cash provided by operating activities for the six months of 2023 with $133 million compared with $95 million in the prior year. The increase was primarily attributed to lower levels of raw materials and packaging supplies inventory combined with higher net income.
Long term debt decreased to $400 million at the end of the second quarter of 2023, compared with $473 million at the end of the fourth quarter of this year.
By lowering our debt our adjusted leverage ratio has also decreased to $1 34 compared to $1 84 last quarter.
As it relates to capital spending we invested $19 million in capital expenditures in the first six months of 2023 compared with $23 million in the prior year.
As announced this morning in our financial results press release, we declared a quarterly cash dividend of <unk> 20 per share payable on September eight 2023 to shareholders of record on August 16 2023.
This concludes our financial review, we can now turn the call over for Q&A Rob.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question comes from the line of Mitch Pinheiro from Serbia and company. Your line is open.
Hi, good morning.
Good morning.
So yes.
Yes.
So the first one.
Talk about the fresh and value added.
Sales were down I'm, just trying to I don't see the Q, yet so I wanted to get some of the detail but.
Two pineapple sales, where we're up.
Correct.
Yes overall, the segment was down because of avocados because of the selling price.
And the volume of non Tropicals, but all the other products had higher selling prices.
And that's what caused the fresh and value added segment to be lower but it was still a strong strong performance.
Okay.
Just I mean $55 million down year over year.
Yes.
Albert.
Kadow Couldnt.
So avocados were down what may be 50% in the quarter is that about what happened with avocados I don't know if you recall last year the pricing on avocados west.
Extraordinarily high this year avocados sell prices are approximately half of what they were last year. So the impact of avocado selling prices a significant it doesn't really impact our profitability on the avocado because the cost goes down as well, but the pricing definitely had a huge impact.
Okay.
Okay.
Yes.
In terms of fresh fruit and the fresh cut veggie business.
That was they were up in the quarter.
The fresh cut.
I'm not sure we're giving all those details.
We're talking the fresh and value added segment includes all the all those products, yes, yes.
Yeah. So it was fresh cut fruit and fresh cut vegetables up year over year.
Restaurant food and fresh cut vegetables were basically flat.
Okay.
Are you seeing any.
Is it flat because.
On the retail side or flat.
No.
Do you do.
Foodservice.
Yeah.
In the case of Peru, we have capacity.
Issuance in terms of.
Processing more fruit, which we are addressing as we speak.
Vegetables that has been.
Decline in terms of based on the volumes.
Yes.
Revenue.
Is that is that is it a foodservice issue or is it.
Is it a channel issue or is that across all channels as well.
Across all channels Mitch.
Okay.
And.
When you look at honey glow in the pink glow.
Yeah.
How big is that within your pineapple business I mean, I know, it's small, but it's growing and I'm just curious where we are now.
Listen.
You need to have into consideration that we're not only in.
In North America.
Panic law is global.
Produce in Costa Rica, we produce in Kenya, we produce in the Philippines. So we have unemployed all these three.
Sourcing.
Areas.
It's about ranging between 25% to 30% of our total volume. So we have a very strong position in this I know that competition has tried to imitate copying at all what we have been doing for the hydro.
I believe that first I want to have the technology and knowledge because we have started this several years back.
We have I believe.
Kind of.
Fine jewelry.
The technology to produce this in a much more.
Efficient way as well.
A higher percentage. So we have a very strong position in the global market and not only in North America and North America actually was the last one to follow after kidney in the Philippines.
So we haven't seen the potential here of optimization in North American market, we just starting actually a few quarters ago.
So I believe going forward that would become more.
And factual.
Okay.
On the banana side.
Yes.
I guess I guess.
This is one of the strongest margin quarters I've seen in quite a while I think I went back to 2017 with last time your banana business had this margin in the second quarter.
You know what.
I mean, what drove that and is any of this.
Sort of sustainable into the third quarter.
While the third.
Third quarter.
As you know historically that the third quarter fourth quarter in the second half of <unk> is usually much softer on bananas.
In the first half because of the sulfur which are competing.
Yeah.
Hi, guys.
And the heat.
<unk>.
As you say out of school.
What really drove this in my opinion is that.
We have kind of rationalized.
Kind of demand and supply with more centralized.
Is that.
We did it.
<unk> supply with demand wasn't there.
That hasnt helped a lot in terms of maintaining.
Okay.
Olivia.
As.
As.
Arrow, our largest by having a lot of waste.
Rejects that's number one number two I think that the cost of the freight and other inputs have helped as well I don't believe pricing has increased a lot compared to the previous years, we are more or less in R&D.
The same more or less in the same range. However.
More rationalization or optimization of our assets.
As I said.
It is many other factors that.
<unk> help you at all the banana agenda to improve the margins.
I think cost.
Reasonable level, so even though we have been.
<unk> negativity would be with the foreign exchange in Costa Rica, particularly at all last year for instance was 650.
No I think it was around six 606 hundred something for long term follow up today, we are talking about 454 of the 45. So we can see the impact of that.
The strength of the galore.
It affected our growth tremendously and Mitch you know I think we also need to remember that last year's second quarter was actually a lower than normal second quarter, usually our Q2 is our strongest quarter.
Because of the inflation that we hadn't caught up with our pricing et cetera. So that really the comparison is also a little bit it is impacted because of that Tim.
Okay.
And so.
This is still a part of your.
Your efforts to continue to focus on profitable volume you are no longer just.
Taking any volume at any cost that's all part of this correct.
That is correct.
And.
And.
Now is the supply and demand balance.
Would you describe that for the upcoming quarter in the <unk>.
In the global market.
Excellent.
I would say that what we see right now in the third quarter as we start to get offices.
We're just starting in the second half of the first quarter. So we see that doesn't like the historical patterns, you and all of that the market.
And the banana market.
Construction has gone down.
Twice.
Not drastically but definitely in the same kind of.
More of historic.
The numbers.
<unk>.
I believe that.
It's not.
It collapsed.
Currently software much softer than the second quarter and the first quarter.
Sure.
Last question.
It was nice to see the asset sales in the quarter are there any.
Anything left in terms of asset sales of significance.
I would like to tell you one thing that fresh del Montes storage with assets.
Most of the world.
It's not that we're going to sell our assets just for the sake of selling assets no. We're selling assets that are really underutilized or not even utilize land buildings.
Business is that we believe it will.
Margins are two lifted elective plastics.
Yeah.
Kind of spending.
Spin it off.
This is the kind of assets that we have we do have other assets.
We may.
So but not at the same kind of pace that we have done during the last couple of years.
So.
You'll still optimize your portfolio your asset portfolio, but it's going to slow down a little bit.
Yes sure.
I've said other things that are mitigating that.
Yes.
Sure.
As I said on the last call. If you remember Mitch I said that we have so many projects and so many.
Initiatives in the pipeline that will change our business going forward.
Trying to give you details, but there is so much in the pipeline.
Transform our business from what you see today through to the future.
Okay.
Okay, well, thank you for the questions.
Thank you.
And we have reached the end of our question and answer session. I will now turn the call back over to management for any final closing comments.
Thank you so much everyone and I appreciate your attendance today and hope to talk to you on the next call.
Wish you a good day, thank you bye.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
Yes.
Yes.
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